Correlation Between Taiwan Semiconductor and Pfizer

Can any of the company-specific risk be diversified away by investing in both Taiwan Semiconductor and Pfizer at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Taiwan Semiconductor and Pfizer into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Taiwan Semiconductor Manufacturing and Pfizer Inc, you can compare the effects of market volatilities on Taiwan Semiconductor and Pfizer and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Taiwan Semiconductor with a short position of Pfizer. Check out your portfolio center. Please also check ongoing floating volatility patterns of Taiwan Semiconductor and Pfizer.

Diversification Opportunities for Taiwan Semiconductor and Pfizer

0.33

Correlation Coefficient

Taiwan Semiconductor  Pfizer

Weak diversification

The 3 months correlation between Taiwan and Pfizer is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan Semiconductor Manufactu and Pfizer Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pfizer Inc and Taiwan Semiconductor is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Taiwan Semiconductor Manufacturing are associated (or correlated) with Pfizer. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pfizer Inc has no effect on the direction of Taiwan Semiconductor i.e., Taiwan Semiconductor and Pfizer go up and down completely randomly.

Pair Corralation between Taiwan Semiconductor and Pfizer

Assuming the 90 days trading horizon Taiwan Semiconductor Manufacturing is expected to generate 1.61 times more return on investment than Pfizer. However, Taiwan Semiconductor is 1.61 times more volatile than Pfizer Inc. It trades about 0.11 of its potential returns per unit of risk. Pfizer Inc is currently generating about -0.04 per unit of risk. If you would invest  394,389  in Taiwan Semiconductor Manufacturing on October 24, 2024 and sell it today you would earn a total of  62,920  from holding Taiwan Semiconductor Manufacturing or generate 15.95% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Taiwan Semiconductor Manufactu  vs.  Pfizer Inc

Taiwan Semiconductor

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Taiwan Semiconductor Manufacturing are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Taiwan Semiconductor showed solid returns over the last few months and may actually be approaching a breakup point.

Pfizer Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Pfizer Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong technical and fundamental indicators, Pfizer is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Taiwan Semiconductor and Pfizer

The main advantage of trading using opposite Taiwan Semiconductor and Pfizer positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Taiwan Semiconductor position performs unexpectedly, Pfizer can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Pfizer will offset losses from the drop in Pfizer's long position.

The idea behind Taiwan Semiconductor Manufacturing and Pfizer Inc pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.